Erin Winters - Director, Investor Relations Bill Austen - President and Chief Executive Officer Mike Clauer - Vice President and Chief Financial Officer Jerry Krempa - Vice President and Controller.

George Staphos - Bank of America Matt Krueger - Robert W. Baird Scott Gaffner - Barclays Anthony Pettinari - Citi Mark Wilde - BMO Adam Josephson - KeyBanc Capital Philip Ng - Jefferies Debbie Jones - Deutsche Bank James Armstrong - Vertical Arun Viswanathan - RBC Capital Markets Chris Manuel - Wells Fargo.

Good day and welcome to the Bemis Company hosted First Quarter 2016 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Erin Winters. Please go ahead, ma’am..

Thank you. Good morning, everyone. Welcome to our first quarter 2016 conference call. Today is April 28, 2016. After today’s call, a replay will be available on our website, bemis.com under the Investor Relations section.

Joining me for this call today are Bemis Company’s President and Chief Executive Officer, Bill Austen; our Vice President and Chief Financial Officer, Mike Clauer; and our Vice President and Controller, Jerry Krempa. Following Bill and Mike’s comments on our business and outlook, we will answer any questions you have.

However, in order to allow everyone the opportunity to participate, we do ask that you limit yourself to one question at a time, with a related follow-up and then fallback into the queue for any additional questions.

At this time, I will direct you to our website, bemis.com, under the Investor Relations tab, where you will find our press release and supplemental schedules. In Mike’s discussion of the financials, he will specifically be referring to Pages 4 and 5 of the supplemental schedules.

On today’s call, we will also discuss non-GAAP financial measures as we talk about our performance. Reconciliations of these non-GAAP measures to GAAP measures that we consider most comparable can be found in the press release and supplemental schedules on our website.

And finally, a reminder that statements regarding future performance of the company made during this call are forward-looking and therefore subject to certain risks and uncertainties. Actual results may differ materially from historical, expected or projected results due to a variety of factors.

Please refer to Bemis Company’s regular SEC filings, including the most recently filed Form 10-K to review these risk factors. Now, I will turn the call over to Bill Austen..

Thank you, Erin and good morning everyone. As I look at the entirety of our business, there are many indications of continued progress towards our long-term goals. We increased gross profit margins 70 basis points over last year. We increased ROIC to 10.5% versus 9.9% one year ago.

We announced another strategic acquisition, SteriPack, that supports our inorganic growth plans and we continue to execute our capital investment program to support growth and efficiency. I am pleased with the progress we are making at implementing our long-term strategy.

However, in the short-term, our operational performance for the quarter was mixed. In the U.S., we performed very well. As expected, overall sales volumes were flat. Operationally, our U.S. business made great progress on margins, a good portion of which was driven by our asset recapitalization program. While I am proud of the performance our U.S.

plants demonstrated this quarter, I don’t expect future improvements to be at this exceptionally high pace. In our global business, sales unit volumes were strong across all regions. We continue to see our strategy working as we leverage our technology and know-how globally to increase the sophistication level of packaging.

However, we stumbled operationally in the two specific areas of our global business. In Latin America, we didn’t react to short-term order patterns by properly reducing costs.

And in our newly expanded Oshkosh healthcare packaging facility, we underestimated the hiring timeline and learning curve associated with doubling the workforce and the impact it would have on the financials. Mike will provide additional color in a few minutes. But in short, we disappointed ourselves.

Our teams are working to rectify these issues and reestablish an acceptable steady-state operating environment. I have complete confidence in the dedication and capability of our leadership and workforce to fully remedy the issues by the third quarter. Moving now to an update on our recent strategic acquisitions.

We announced last week that we signed an agreement to purchase the healthcare packaging business of SteriPack. This is an excellent strategic acquisition for several reasons.

First, while the healthcare packaging space tends to have a long gestation period for gaining new business organically, this acquisition fast tracks us with some strategic customers in the medical device packaging. We look forward to the inroads we will now have in this base of customers. Second, there is a geographical fit.

We are acquiring a facility in Ireland just hours away from our legacy healthcare facility in Northern Ireland and we are also acquiring the packaging assets from a facility in the U.S. and one in Malaysia. Assets from these two locations will be integrated into our existing facilities in the U.S. and in Kuala Lumpur.

Third, we see meaningful synergies from our capabilities in film coating technologies. Once qualified, we can start using Bemis-manufactured films in the converting process of the acquired business.

After closing this transaction, I look forward to integrating the SteriPack business to create an even stronger, more customer-centric and more profitable Bemis healthcare packaging business. I welcome the SteriPack team to Bemis and look forward to their contributions to enhancing and growing our combined businesses.

Now, an update on Emplal, the acquisition we closed in December. Integration is in the early stages and on schedule. We are solidifying our $7 million to $8 million synergy plan, which covers SG&A, procurement and plant and equipment rationalizations. We are starting to implement these plans and will fully realize the benefits in 2017.

Turning to the topic of guidance, our intent is to reflect our expectations, expectations that are realistic. We are therefore trimming the top end of our 2016 EPS range fully on account of the operational inefficiencies in our Global Packaging segment that I mentioned earlier.

This updated range of $2.68 to $2.78 assumes today’s currency exchange rate and also assumes Global Packaging segment will return to our originally expected profitability levels by the third quarter.

In summary, while we had some operational struggles this quarter, I am very confident in our strategy and our desire to improve and our ability to create long-term shareholder value. My confidence is built on several things.

One, we have the right people taking action in our global operating units, specifically in Latin America and our Oshkosh healthcare business. Two, our innovation pipeline remains strong, the rigor dedicated to this plan gives me clear line of sight to our growth.

Three, we have the right capital plans in place and we are executing on our asset recapitalization program that is driving real margin improvement across all end markets in our U.S. business. And finally, we have the will and the sense of urgency to perform at a higher level each and everyday.

With that, I will turn the call over to Mike for his comments on the financials.

Mike?.

Thanks, Bill and good morning. We reported adjusted earnings of $0.60 per share for the first quarter compared to $0.61 the prior year. Currency translation decreased EPS by approximately $0.03 versus 1 year ago primarily driven by currencies in Latin America that devalued against the dollar.

From a total company perspective, we delivered solid improvement in gross margins during Q1 at 21.6%. This improvement was driven primarily by strong operational performance in our U.S. Packaging segment partially offset by challenges and portions of our global segment. Looking at Slide 4, some detail in U.S. Packaging. Sales dollars in our U.S.

segment declined by 6.6% over the prior year. The decline in sales dollars was driven by contractual price reductions to pass through lower raw material costs, which is neutral to profit, along with lower sales mix from less differentiated products.

Keep in mind that a lighter sales mix does not necessarily translate to less profit, a clear benefit from our asset recapitalization program that is increasing the margin profile of all product lines through increased run speeds, lower waste and overall efficiency improvements. Unit volumes were flat during the first quarter versus the prior year.

U.S. Packaging operating profit return on sales was 15.4% compared to 13.5% last year. 50 to 60 basis points of this quarter’s improvement over the prior year first quarter was mat related to lower priced raw materials passing equally through the cost of goods sold line and the revenue line.

I point this out because we do not consider this improvement when judging our performance against our long-term targets of 15% to 18% in this segment. And we will continue our strategic efforts to drive margins in the long-term regardless of what raw material prices do.

The remainder of the improvement in margins this quarter was driven by manufacturing efficiencies primarily from our asset recapitalization programs. I do not anticipate this exceptional high pace to continue through the remainder of the year. Turning to Slide 5, moving to our Global Packaging segment, sales dollars were down 7.7% over the prior year.

Currency translation reduced sales by 20.3%, driven by currencies in Latin America that devalued versus the prior first quarter. The December acquisition of Emplal contributed a 4% increase in sales over the prior year.

As we integrate the Emplal business this year, it is becoming increasingly difficult to bifurcate the sales attributable to Emplal on a meaningful standalone basis as we optimize where things are being produced.

Excluding the impact of currencies and acquisitions, our global segment delivered organic sales growth of 8.6% this quarter versus the prior year driven by unit volume increases of 3% and the remainder by selling price and mix. Adjusted Global Packaging operating profit return on sales was 5.3% compared to 8.8% last year.

Currency translation negatively impacted operating profit by $3.8 million or about $0.03 a share of the total company’s earnings compared to the prior year. While our business in Europe and Asia performed quite well from both a volume and operational perspective, our Latin American healthcare business has struggled operationally.

First, a bit of detail on our business in Latin America, which contributed approximately three quarters of the overall decline in our Global Packaging segment operating profit. Overall, sales volumes in Latin America were stronger than expected driven by our flexibles business.

Our customers continue to transition to the high-end deli style meat packaging along with a variety of other products that are gaining tractions due to our efforts to lever our technology know-how globally. I am pleased with our continued progress of this companywide front.

However, in Latin America’s rigid business, where we make products such as tubs for margarine, yogurt and ice cream, we did not perform well operationally during the quarter.

Customer orders were softer than planned due to producers’ aggressive pricing actions that were initially resisted by the retailers and also due to a fire at one of our customers’ plants. We did not take out variable and semi-variable costs at a fast enough space, creating a $0.04 EPS drag during the quarter.

We have already implemented corrective actions within our Latin American business, but we anticipate seeing hangover in the financials during the second quarter. Second, turning to the issues in our healthcare packaging business this quarter.

As you may recall last year, we embarked on the closure of our healthcare packaging facility at Philadelphia and the expansion of our facility in Oshkosh, Wisconsin that will elevate our industry leading quality and support additional growth.

By October of last year, we had achieved validation and product functional equivalency on our coder, the prominent piece of equipment which allowed us to ship commercial products from our expanded Oshkosh facility.

As planned, our Philadelphia plant closed in January this year, at which time we have relocated the final remaining converting assets to Oshkosh. Over the last couple of quarters, we have almost doubled our workforce in Oshkosh to support the expansion and have done a reasonable job managing that.

However, in Q1, as we move the final pieces of equipment to Oshkosh from Philadelphia, we struggled bringing the last large round of the new employees up to normal operating levels on these machines. It was a steep learning curve.

And while our new workforce is motivated and well intended, the experience level cost higher waste, slower run speeds and duplicate cost and training. This resulted in a $0.02 negative EPS impact versus the prior year instead of the $0.005 improvement that was expected for the first quarter.

While we are disappointed in the short-term financial results of the situation, improvement is underway and we anticipate the financial impact to be remedied by the third quarter and return the investment to its original financial objectives albeit a few quarters behind the schedule. Moving to Bemis consolidated results.

Total company SG&A expense in the first quarter was $99.4 million as compared to $106.4 million last year. We continue to expect SG&A dollars to be flat on a full year basis in line with our long-term targets. Research and development expense for the quarter was $11.5 million flat with the prior year.

This is an appropriate level to support new product innovation and future product commercialization. The income tax rate for the first quarter was 33%, in line with our expectations of full year tax rate slightly above 33%.

Operating cash flow for the first quarter totaled $52.6 million, slightly less than my expectation due to inventory levels in U.S. Packaging.

We continue to expect cash from operations in the range of $450 million to $500 million this year, which includes $50 million to $75 million of working capital takeout during 2016 primarily from global payment terms.

As mentioned at the start of the year, I anticipate normal seasonality and cash flow throughout the year with cash from operations building from first quarter levels. Capital expenditures were $30.6 million this quarter. We continue to expect the full year CapEx will be approximately $200 million as we previously stated.

Looking next on return on invested capital, our goal is to improve this metric year-over-year toward our long-term goal of being in the upper quartile of our peer group. In the first quarter, ROIC increased to 10.5% compared to 9.9% last year in Q1. During the first quarter, we repurchased 1 million shares for a total of $44.3 million.

On February 4, our board increased the share repurchase authorization by 20 million shares. We anticipate buying these shares back over the next 3 to 5 years. In making this decision, we took a fresh look at our capital allocation strategy. I hold a high regard for our investment grade credit rating, particularly at this point in the cycle.

We will prioritize capital spending for organic growth and efficiency improvements. We will return free cash flow to our shareholders over the long-term horizon. At March 31, the remaining board authorization for share repurchase was 22.4 million shares.

Turning to EPS guidance, we are lowering the top end of our range by $0.05 fully on account of operational issues in Latin America and our Oshkosh healthcare packaging facility. We expect adjusted EPS for 2016 of $2.68 to $2.78 a share.

The impact of currency translation and SteriPack acquisition that is planned to close soon, are both included in this range. Specifically, on currency translation, we have assumed the Brazilian real at 3.6 for the remainder of the year. And specifically on SteriPack, we expect $0.01 to $0.02 of EPS in the current year.

Where we are within the EPS range of $2.68 to $2.78 will be dependent on volumes in our business, movement of currencies and our correction of short-term operational issues in our global segment.

While I am disappointed with the issues encountered in global segment this quarter, I continue to remain confident in our ability to further improve financial performance to create long-term shareholder value in line with our targets. With that, I will turn the call over for questions..

Operator, are there questions?.

[Operator Instructions] We will go first to George Staphos with Bank of America. Please go ahead..

Hi, everyone. Good morning. Thanks for the details. Couple of questions to start.

Number one, recognizing that the operational issues were the reason why you lowered the top end of the guidance why did you maintain the low end of the guidance? Was it just cushion you had in the model? Was it a little bit of the benefit you are getting from Stericycle if you would comment there? And then again, within guidance, can you remind us, Bill, what are you looking for in terms of volumes for the two segments over the remainder of the year? Thank you..

George, this is Mike..

Hi, Mike..

I will talk about the range and then I will let Bill comment on volumes. We really didn’t have a lot of cushion. Why we held the bottom of the range is definitely the reais coming down has been a benefit and the addition of SteriPack has helped. I think everything else that we are looking at we see really no other problems at this point in time.

And it’s really more a function of how quickly we get the operational issues improved. And at this point in time, we are feeling confident that, that will – that there will still be some drag in Q2, but we will get it back to where we want it to be in Q3.

And then Bill?.

Yes. On volumes, George, what we said on the last call for U.S. Packaging volumes would be flat in the first half and pickup in the second half of the year for a plus 1 total year. We still see that in our sites. And on global, we see up 4% volume in – for 2016, that’s what we said on the last call and that’s where we are today still..

Is there a follow-up a George? Do you have another question operator?.

Yes. We will go next to Ghansham Panjabi with Robert W. Baird. Please go ahead..

Hi, this is actually Matt Krueger sitting in for Ghansham.

How are you guys doing today?.

We are doing fine. Thank you..

Great.

Can you walk us through what you guys saw in terms of regional demand for the quarter and kind of what your outlook is for regional demand through the remainder of 2016?.

Sure. This is Bill. If you look at the overall company, if you go around the globe, U.S. Packaging is just what I just said. We see flat in the first half and our volumes picking up in the second half, primarily due to some innovation that comes on-stream and orders that come up on on-stream in the second half of the year versus the first half.

If you look at the rest of the global business, demand is good. Order rates are good around the world. Latin America, Argentina is solid. We see good demand in Mexico. For flexibles, good demand in Brazil for flexibles.

And coming out of the issue, the operational issues we had in Q1 based on margarine edible fat demands, those volumes are now starting to pick-up to levels that would be acceptable. Europe, we continue to see 1% growth across Europe in our protein business. And in Asia Pacific, we are continuing to see demands in that low single-digit range..

Okay, that’s helpful.

And then one follow-up from me, understanding that inflecting raw material costs can impact the industry competition levels, how has competition trended across your various businesses and can you break that out by region as well?.

As we built our model around raw materials, we have taken the volatility out of our earnings due to whatever happens with raw materials, so we really don’t see our position impacted from a raw material perspective on the competitive front. What others have built into their models for raw materials, we don’t know.

But ours, we see as – we built a sound model, where we don’t have variance in our earnings because of raw material..

And we will go next to Scott Gaffner with Barclays. Please go ahead..

Thanks. Good morning..

Hi Scott..

Bill, Mike, just looking at the operational issues, specifically in Brazil you said you didn’t react quickly enough, I guess two parts on that. One is do you feel like there was a breakdown in the line of communication from the region back or was there some sort of hope that the volumes would recover.

Can you just maybe walk us through sort of operationally how that came about?.

Yes, Scott. This is Bill..

Hey Bill..

We have a rigid business in Brazil. If you go through across the whole region, Argentina is in great shape, Mexico is in great shape, flexibles across the entire region was in great shape. So what were the operational issues we suffered was solely dedicated to our rigid business in Brazil.

A large percentage of that business is dedicated to manufacture of margarine tubs. The margarine producers jacked prices up. The retailers pushed back. They squelched our volumes and what our team did down there was what most teams would do, think that those volumes are going to come back and they waited too long.

Coupled with that, one of our large margarine producers happen to have a plant fire, so the plant fire took several weeks out of production at one of our facilities, compounded with the fact that retailers stopped drawing margarine. It’s costly to take variable cost out meaning severance charges are expensive in Brazil.

Our team thought this was going to be a short-term issue, meaning weeks. It turned out to be quarter-long, so they struggled. And it wasn’t a communication issue. It was a decision they made not to take out the variable, semi-variable costs because they thought the volumes were going to come back. They didn’t.

We are now much – we are in a much better position now, having gotten in line. Orders are ramping back up again, coming back to normal levels in that margarine segment. And the fire, that plant is back up and running again..

Okay.

So when you said the operational inefficiencies would be fully recovered in the third quarter, we should expect some gradual improvement in the second quarter, is that the best way to think about it?.

Yes, ramping up through the second quarter. It’s not something that we are going to get in line tomorrow. It will take the quarter to get it back in line..

Scott, this is Mike. Also keep in mind we are actually – I am going to make a – I want you all to read this. We are going to take capacity down, meaning we are going to take shifts out.

We might – if the plant has 20 pieces of equipment, we might take two down because that was the other part of the problem, was they had staffed themselves to forecast that wasn’t being hit. What we are going to do now is we are going to use over time to flex manufacturing up in the event we get a spike in production..

And we will take our next question from Anthony Pettinari with Citi. Please go ahead..

Good morning. Just a question on the M&A pipeline, I was wondering if you could talk generally about availability of attractive assets and the multiples you are seeing. And then following SteriPack, is healthcare – is it safe to say healthcare kind of remains the most likely target of M&A.

And then during the quarter, you had a large global competitor that bought, I think the largest flexible packager in Latin America, is that a business that you compete against or was it one that you looked at or if you can give any color there?.

Yes. I will start with the Techpack down in Latin America. Number one, we don’t compete with them at all. We don’t – we are not in the same markets. We had spent time with the company about a year ago. It’s a nice business. There had been a lot of talk. It was going to come into a process. I applaud Amcor for being preemptive.

I think it’s a nice foothold for them. I don’t feel bad about it because I don’t view it as changing any of the competitive landscape in Latin America. As far as our pipeline, yes there is a lot of activity going on. There is assets coming into the market.

Healthcare again, as you indicated would be a high priority of ours, but also geographic expansion. So we are excited about SteriPack and we have other things that we are working on. Multiples, we are still seeing for kind of food, flexible food type assets, you are 8x, 9x-ish.

In healthcare, you are going to be 9x to 11x depending on the asset and the growth profiles. But that’s kind of what we continue to see..

Okay, that’s very helpful.

And then maybe for Bill just kind of a bigger picture question, as you come in, you are sort of shaking up the innovation function and tried to take a fresh look at the portfolio and Bemis obviously has leadership in food and bev and healthcare packaging, I am just wondering as you kind of take a fresh look, are there other packaging categories, I don’t know protective packaging for instance, where we are seeing a lot of growth and competitor margins look pretty attractive or do you think Bemis’ capabilities in innovation would be a good entry point and is it possible to, I don’t know size the opportunity there or is that something that you could do in 2017, 2018, just kind of any thoughts that you have there?.

Yes. Bigger picture, if you step back and you look at what we are today, we are very focused on polymer-based packaging. So you are not going to see things like paper and liner board and things like that for us to look at in adjacency in, Anthony.

We are going to look at adjacencies that are in the polymer space and it would be polymer barrier, alright. So any other types of polymer-based packaging that would incorporate barrier, incorporate high graphics, incorporate barrier fitments.

Those are the areas that we have on our radar screen that we have on our list of other types of technologies that we want to get into, where we could leverage our material chemists and our material science guys to create something different. So those are the spaces that we are looking at..

And we will take our next question from Mark Wilde with BMO. Please go ahead..

Good morning..

Hey, Mark..

First question I had, North American volumes were flat in the quarter, but I know that you have actually been picking up volume in some markets like that bread bag business that you would put capital into.

So Bill, can you just help us understand sort of where the different puts and takes are in the domestic business in the North American business?.

Yes, I think as you look at Q1, Mark, some of – there is always some seasonality on what would be the higher margin profile types, meat, cheese types of markets in Q1. You come out of a Q4, where a lot of companies build up their inventories.

They slow down in Q1 and they start to pick up toward the tail end of Q1, but you don’t see those sales into Q2, Q3 for, I hate to say it, but summer grilling season and a lot kind of stuff, right, that’s where you see that pickup.

But if you look at what’s going on with us right now in U.S., for the last two quarters, our recap program is starting to gain a lot of traction and you are seeing those what we would call our less differentiated products picking up the volumes of the down seasonality in the higher end, higher barrier end of the markets, so that we have got a much better position from a volume perspective, which has been our strategy all along with that recap program to attack the less differentiated products, so we can continue to grow margins and maintain and grow volumes in that end of the business..

Yes.

But if your overall volume is flat and you are picking up volume because of this recap activity, does that actually mean like the seasonality perhaps in some of the businesses like protein was actually sharper than normal? And so you actually had kind of negative year-over-year volumes?.

Well, if you look – if you went to the IRI data, you would see that some of those protein markets were down in Q1. So, we just follow that seasonality down in Q1, comes back in Q2 because now the customers are filling their pipelines again. And we have made up those volumes in the less-differentiated product categories..

Okay. Just to kind of follow on this a little more, one of the big paperboard packaging companies yesterday said that they were seeing better volumes in recent months from kind of food processors and other food-related businesses.

Are you seeing any of that?.

I can’t specifically say that we are seeing it from any one specific food processor, Mark, but we are seeing volumes – we are seeing increasing volume in our less differentiated product categories..

And we will take our next question from Adam Josephson with KeyBanc Capital. Please go ahead..

Thanks. Good morning. Bill, just one on Avery Dennison’s announcement yesterday, they are buying the Mactac Europe business. Obviously, they are paying more for just the Europe piece than you sold the business for a little under a couple of years ago.

Are you surprised by what private equity is able to sell that piece of the business for? And do you have any regrets about selling it when you did?.

No, not at all, Adam. Quite frankly, we looked at that scenario, but based on antitrust issues that we would have had the leftover U.S. piece and nothing to do with it. We wouldn’t have had any exit strategy for the U.S. had we sold the European piece outright. So, no, not surprised, it’s what we had thought..

Okay.

And just one on buybacks, what is your view of buybacks at current levels?.

Well, my view of buybacks is kind of what I said in my comment is that we are going to return our free cash flow to our shareholders over a 3-year to 5-year period of time via dividend and share repurchase..

And we will take our next question from Philip Ng with Jefferies. Please go ahead..

Hey, guys.

Can you provide a sense of what the margin profile is for SteriPack and type of synergies you expect to realize over time? And then separately, if I remember correctly, margins in healthcare was probably middle of the pack among your different verticals, do you now have enough scale where you can bridge that gap over time?.

First of all, the margin profile of SteriPack was very comparable to our existing business, so low single-digits. So, we are excited with that. It’s low-teens..

Low-teens..

I am sorry, low-teens. The synergies we see with SteriPack, number one, the biggest synergy is the fact that once we can get our films qualified, we will be able to use that in their packaging business. So today, they are going to be buying most of their film structures from outside of competitors of Bemis, so that’s a pretty meaningful synergy.

Also moving those, the production into – in the U.S. and Malaysia into our facilities, there is quite a bit of margin enhancement just from those plants where we are really being used for the piece of business that the founders are going to keep, which is contract manufacturing. So, we will get a nice margin uplift there.

And as Bill mentioned, we have no intentions of a facility consolidation, but we have two plants now within a couple of hours of each other that we will definitely go after the SG&A side of that equation to make sure we run both those plants as kind of one plant over a long period of time. So, those are the type of synergies that we fully expect.

We don’t see any this year. And a lot of that’s just really driven by as you guys know in the healthcare packaging, things take a little bit of time to get qualified..

And the low-teen margins, is that EBITDA margin or EBIT margin?.

OP..

OP..

Yes, EBIT..

Okay, alright. Got it. And then last one from me, with the B cycle turning in North America and perhaps protein getting a little better as well, can you size that opportunity for you in the grand scheme of things? Is that about like 5% of your business in U.S.

Packaging or a little less?.

Shrink bags, right?.

Yes..

Yes. We are primarily processing as you know Phil. Our shrink bags business in the U.S. is relatively small, $150 million or so. So, it’s a space for us to improve, but most of our meat would be in processed..

And we will take our next question from Debbie Jones with Deutsche Bank. Please go ahead..

Hi, good morning..

Hi, Debbie..

Just to go back to the healthcare facility in Oshkosh, are you making product at this point that can be delivered to the customer? And then what would or could you think you could have done differently?.

Debbie, we have been making and shipping product since October....

Yes, I guess on the expansion, the specific expansion..

Yes, yes. From the expansion, we have been shipping product from October. We moved the last piece – several pieces of equipment in late December, January into that facility from Philadelphia and it was bringing the labor force up on those critical pieces of equipment where we stumbled.

And it was – we are now producing at above the levels we need to be at to work through the backlog. So, we have been shipping from there right throughout the whole cycle..

Okay.

My second question something related to George’s initial one about guidance, you didn’t take down your CFO guidance and I am just curious, is that – one is SteriPack going to be cash flow positive this year and this suggests you are kind of tracking at the higher end of your internal assumptions?.

Well, to be completely honest, I mean the reason we didn’t move on our free cash flow guidance is because our outlook and our projections still suggest that, that’s a very achievable number. And I would expect a modest add to cash flow as a result of SteriPack during the year..

And we will take our next question from Chip Dillon with Vertical. Please go ahead..

Hi, it’s James Armstrong for Chip. First question I had is on the Oshkosh, Wisconsin healthcare packaging facility.

Why put that in the Global Packaging segment? Should it not be in the U.S.? And what proportion of that facility actually gets exported?.

The reason that healthcare packaging is in global is because that’s a global, around the world business for us. We have plants everywhere that serve the same customers with the same specs. So, we add that into the global business and not part of the U.S. business.

We don’t have broken out what components might get shipped from there that end up going outside of the United States. We would ship to somebody in the U.S. and then they might ship it outside the U.S..

Okay, that makes sense.

Switching gears, just could you review how the roll off of lost business in early ‘15, really referring to the Capri Sun and beverage wrap, will occur through 2016? Is it all pretty much done or will it be over the entire year?.

It’s going to be – it’s going to continue in both Q1 and Q2. And I think somebody asked an earlier question, was flat good? Flat was good from the standpoint we were still lapping the Capri Sun business in Q1 and will continue in Q2..

And we will take our next question from Arun Viswanathan with RBC Capital Markets. Please go ahead..

Good morning. Thank you. I guess just trying to reconcile a couple of things we are seeing in the industry.

Many of your upstream suppliers are speaking of very strong volumes in packaging and many of the downstream packagers like yourself and some other folks and then what we are seeing in the Nielsen data is relatively muted, flat to low single-digit growth, I am just trying to understand why the polyethylene price increases are going through and what kind of volumes you guys see for the rest of the year, if that could increase sequentially?.

Sure. I can’t speak to what’s going on with polyethylene prices other than there was a nickel that was – went into the market in March, that’s a function of the polyethylene providers’ capacity, capacity utilization, what outages they have coming, which outages are underway right now. So I can’t speak to that.

I can speak to the fact that there was a nickel that went in, in March. Volumes, we are on our track for volumes right now. We said we would be flat in the first half. We still see that is happening and we see volumes in the back half of the year in U.S. Packaging being up for a total year of plus one.

And globally, we are seeing good, solid demands across the globe in all of our global packaging entities in Latin America, Asia, Europe and healthcare. So we are on our pace to where we wanted to be in 2016..

Great. And then just as a follow-up, maybe you can just give us an update on the asset recap program, maybe what inning you are in and how you see that playing out for the rest of the year? Thanks..

Yes. Just go back to our CapEx guidance this year. We are on pace to hit that. We re continuing with our asset recapitalization program in North America with presses, rewinders, film lines, taking out old equipment, bringing in new, reducing our costs, expanding our margins. That’s the plan we have been on and that’s what we are going to stay on.

We are still in the early innings there as we have 27 plants across the U.S. And there is a portion of recap that can certainly be utilized in all those plants. But we prioritize them using 15% return on invested capital over a 5-year average and that is what we are continuing to pace and see with all the projects that are coming in.

So you are going to see our recap program continue to gain traction through 2016..

And we will take our next question from Chris Manuel with Wells Fargo. Please go ahead..

Good morning gentlemen or I guess good afternoon now, I apologize. Most of my questions have been asked and answered. I do have one follow-up though, one question.

But before I say that, thank you much for the color, it’s very refreshing that you are so transparent about where the problems are and helping us quantify them without digging it out, so difficult.

My question is it sounds like with the Oshkosh facility that’s coming on-stream, well as we sit today just a little bit delayed, it sounds like you are going to be putting some more business through there, what you bought with the most recent acquisition.

Once you get that all kind of layered in or get all the facilities together, where are you going to be sitting on the utilization rate or how do you feel you will be for utilization in the healthcare business or do you still have – I guess really, what I am trying to get is do you have a lot of room yet to grow there?.

Yes. Chris, we have room to grow in the healthcare space, okay. Because basically when we move from Philly to Oshkosh, it was a new facility, but it also recapped that new facility because of all the older assets, slower speeds, narrower webs that we are running through the Philadelphia facility.

So we have got room to grow within the healthcare space as we built out that new facility. And it was done with that in mind..

Alright.

It sounds like with SteriPack as well, you were intending to transition them to some of your coated films and such I am guessing that’s coming out of that facility as well?.

Yes. And in Europe as well, Chris..

Okay, that’s helpful.

Another follow-up question I had was as you are seeing some of the new business wins and those will begin to really trickle through, I guess in more earnest over the balance of the year, can you maybe give us some color as to what categories or areas that you are seeing the most opportunity today as well as – I mean usually, you always have some businesses that are kind of growing, some that are shrinking, but maybe if you can give us a sense of where you are seeing the most growth, the most opportunities within the markets and where quite frankly, maybe some of the areas that you are seeing a little bit of shrinkage?.

I will address where we are seeing the project activity, I guess is the best way for me to put it. And that, when I say project activity those are stage gate projects. We are seeing good stage gate projects and traction in liquid. Again that’s the conversion of glass and cans to flexibles.

Protein, good projects in the protein space, we are also seeing good projects and commercialization of projects in the medical space, which is for film and coated Tyvek. So as well as in pharma with our CXB product and that’s a global product that we are taking to all the pharma companies around the world.

So we have got good traction through stage gate in basically the vast majority of our segments..

And we will take our next question from George Staphos with Bank of America. Please go ahead..

Thanks for taking my follow-up.

I guess first thing I want to come to is when we look at the asset recapitalization program, Mike you said – and Bill you said we won’t see this repeat in terms of margin performance at the same pace in the next few quarters, I was wondering if you could – I saw the fact that you did pretty well in the first quarter, provide some color as to why you think the pace of improvement won’t continue at the same rate.

And then as you look at the mix of returns that you are getting across the end markets that you are running now more efficiently because of the recap program, what’s been some of the surprises, either positively or negatively in terms of return by end market, would you be able to talk to that a little bit? Thanks..

Sure. George, the first part of your question has to do with why we won’t see that extraordinary ramp up of margins as we go through the rest of the year..

Yes. I am assuming it was tough comps. I just want to hear from you guys..

Yes. No, you just recall, this is first quarter. So at the end of the year, we got a lot of equipment that comes down for maintenance, for outages, for the holidays. And normally, as you ramp that equipment back up again, you incur a lot of waste, a lot of scrap, you are not quite there with throughput, you are not running the right spec.

We had a great startup in North America this year, okay. That being completely transparent, we had really good startup in North America. Again, that goes to good effort by our plant teams, newer equipment that starts up easier, starts up quicker, doesn’t have all the startup waste that some of the older equipment might have had.

So on a year-over-year, first quarter to first quarter basis, we might have seen 40 basis points to 50 basis points of margin improvement just from that lower waste, lower scrap, getting online quicker than we have in the past.

And second part of your question about margins across segments, when we put in those recap pieces of equipment, we step up margin without – as we have talked, without having to adjust market pricing. So we are able to do that across the board, whether it’s in bread bags, whether it’s in non-barrier polyethylene type markets.

And we are going to continue to do that as we go forward. I can’t give you specific numbers across those market segments, but just know that we are expanding margins in that less differentiated product categories..

George, this is Mike. And just to clarify my comment, our guidance for U.S. pack, our guidance would suggest U.S. Packaging for the balance of the year would be 70 basis point to 90 basis point improvement, I just didn’t want people running away with 190, thinking that’s where we are going to stay at that pace.

We are still going to stay at what I consider a really good pace as we drive towards our long-term horizon goals..

And we will take our next question from Mark Wilde with BMO. Please go ahead..

Yes. I got a couple of follow-ups.

One, can you just – can you talk about where that kind of flat film rollout or build out is right now?.

Sure Mark. We have received some nice orders from a large processor here in the United States and we are ramping up the sales of that product to that customer and we will be fully on-stream in Q3 with that customer at full run rate orders..

And then the other question I had – the other follow-up I had is just I wonder if you could talk about this $20 million share repurchase authorization just in terms of sort of the change in kind of strategy that it might represent for Bemis going forward, because it is a big change from the way you have used repurchase in the past?.

Yes, this is – it’s really about the allocation. We put a lot of effort into the optimum ratings that we wanted. And the work that was completed suggests that our current rating of investment grade, BBB for better terms is where we should be, but that doesn’t suggest, number one that we have to have leverage down at 2.1x.

It says we can be more comfortable at 2.5x. And the big change in the strategy is we are going to prioritize first our needs for growth and recapitalization of CapEx. And then put it simply, we are going to return free cash flow to our shareholders via dividend and the share repurchase. And we will use leverage to do our acquisitions.

That’s the simplest way I can put it, Mark, of how we are looking at this going forward. And we are always going to be looking on a forward horizon and what we feel about our free cash flow and what kind of M&A activity might be imminent. And if there is nothing imminent that we need, we would return that cash to our shareholders..

And we will go next to George Staphos with Bank of America. Please go ahead..

Hi, guys. Some last ones from me just to finish up. Obviously, you have got your hand on the pulse in terms of the operational issues in the Global Packaging segment. From where we sit, obviously, we are not to be able to get a heck of a lot of visibility in terms of how you are proceeding against your plan for obvious reasons.

If you were in our shoes, aside from second quarter reporting season and the results that you put out in your comments there, is there anything – any mile markers you would guide us to, to know or have a bit more comfort that you are resolving those operational issues? That’s question number one.

My question number two, I think you mentioned that working capital was a little bit below – or efficiency was a little bit below your plan for the quarter. Can you remind us what was driving that? And then lastly, you said you talked about capital structure and the cycle suggesting you have a view on where we are in the cycle.

And if you do, could you sort of add a bit more color there in terms of your expectations for the next couple of years? Thanks..

Okay. First of all, there is – I mean, we don’t talk in between quarter ends, so unfortunately, there really would be no way for you to know if things are getting better prior to us releasing Q2 earnings. So, that’s just – that’s a fact..

But if we see better margin trends out of Latin America, I guess that would be one minor signpost, but anything else like that?.

You would see it in Q2, the Global Packaging margins get back on pace with where they should be like that would be an indicator that it’s improving. The comment on over the cycle on investment grade, we don’t have visibility into where we are in the cycle.

What we did is we looked at a 10-year period of time and the optimum level to be at from a borrowing perspective. And quite honestly, from how......

Availability..

Availability in the markets and also linked to how stock of companies perform that is just the best place to be over a long period of time. I mean, so that was meant by that comment..

Understood.

And the working capital?.

On the working capital, yes, we missed – my internal expectations, was about a $9 million miss and that was primarily in heavier inventories in our U.S. operations. I think it’s pretty hard to peg this thing exactly where it needs to be on a quarter-to-quarter basis.

However, we have sat down with the group and they fully understand that we have cash flow – operating cash flow objectives like we have the EPS objectives. And there is an expectation that we get this inventory back to where we, including the business that actually helped develop those objectives get it back in line as we go through the year..

Okay, thank you..

You are welcome..

And we have no further questions at this time. I would like to hand it back over to our speakers for any final remarks..

Thank you. Thank you everyone for joining us today and this concludes our conference call..

Thank you. You may now disconnect and have a wonderful day..